Redx Pharma : Publication of Joint Administrators' Proposals

10 August 2017

THE INFORMATION CONTAINED WITHIN THIS ANNOUNCEMENT IS DEEMED BY THE COMPANY TO CONSTITUTE INSIDE INFORMATION AS STIPULATED UNDER THE MARKET ABUSE REGULATION. UPON THE PUBLICATION OF THE ANNOUNCEMENT VIA A REGULATORY INFORMATION SERVICE, THIS INFORMATION IS CONSIDERED TO BE IN THE PUBLIC DOMAIN.

REDX PHARMA PLC (in administration)

("Redx" or "the Company")

Publication of Joint Administrators' Proposals

Redx, the drug discovery and development company, announces that Jason Baker and Miles Needham of FRP Advisory LLP, joint administrators of the Company and of its subsidiary, Redx Oncology Limited ("Oncology") (together, the "Companies") have posted their statement of proposals to the members and creditors of the Companies in accordance with the Insolvency Act 1986 and the Insolvency Rules (the "Proposals").

The Proposals, including appendices, are available to view on Redx's website at www.redxpharma.com. The contents of the main body of the Proposals (without appendices or schedules) are set out below.

Redx Pharma Plc and

Redx Oncology Limited(both in Administration)
The Joint Administrators' Proposals

8 August

Contents and abbreviations

Section Content

1. Introduction and circumstances giving rise to the appointment of the Joint Administrators

2.Conduct of the administrations

3.The Joint Administrators' remuneration, disbursements and pre-administration costs

4.Estimated outcome for the creditors

Appendix Content

A. Statutory information about the Companies and the administrations

B.Joint Administrators' Receipts & Payments Account

C. The Joint Administrators' remuneration, disbursements and costs information

§Estimated Outcome Statement

§Schedule of work

§FRP disbursement policy

§Fee estimate

§FRP charge out rates

D. Schedule of pre-administration costs

E. Directors' Statement of Affairs

The following abbreviations are used in this report:

BTK Bruton's Tyrosine Kinase

CVA Company Voluntary Arrangement

CVL Creditors' Voluntary Liquidation

FRP FRP Advisory LLP

HMRC HM Revenue & Customs

LCC Liverpool City Council

QFCH Qualifying Floating Charge Holder

SIP Statement of Insolvency Practice

The Companies The entities in Administration, being Redx Pharma Plc and Redx Oncology Limited

The Group Collectively the following entities:

Anti-Infectives Redx Anti-Infectives Limited

Immunology Redx Immunology Limited

Oncology Redx Oncology Limited (In Administration)

PharmaRedx Pharma plc(In Administration)

The Insolvency Rules The Insolvency (England and Wales) Rules 2016

The Joint Administrators Jason Daniel Baker and Miles Andrew Needham of FRP Advisory LLP

1. Introduction and circumstances giving rise to the appointment of the Joint Administrators

On 24 May 2017, Pharma and Oncology both entered administration and Jason Daniel Baker and Miles Andrew Needham were appointed as Joint Administrators.

This document, together with its appendices, forms the Joint Administrators' statement of proposals to creditors in accordance with Paragraph 49 of Schedule B1 to the Insolvency Act 1986 and the Insolvency Rules. The proposals are deemed delivered two business days after they are posted.

On 13 July 2017, the Court made an order extending the time period for the Joint Administrators to send a copy of their proposals to the Registrar of Companies, creditors and members of the Companies pursuant to paragraph 107 of Schedule B1 of the Insolvency Act 1986 until 30 August 2017, or such earlier date as the Joint Administrators consider is appropriate. Pursuant to that order, these proposals are being sent after the statutory deadline of eight weeks or earlier, as set out in Paragraph 49 of Schedule B1.

Certain statutory information about the Companies and the administrations is provided at Appendix A.

Background information regarding the Companies

Pharma was incorporated in 2010 and was admitted to trading on the AIM Market of the London Stock Exchange ("AIM") in March 2015. It is the parent company of three subsidiaries (Oncology, Immunology, and Anti-Infectives) and we understand holds all intellectual property relating to the Group's pharmaceutical discoveries. The research activities of the Group are undertaken by the subsidiaries, funded by Pharma.

The Group is focused on the discovery and development of proprietary, small molecule therapeutics to address areas of high-unmet medical need, in cancer, immunology and infection. By improving the characteristics of existing drug classes, the Group aims to create differentiated, novel drugs.

The Group has an established portfolio of proprietary drug programs that it is developing alone and in partnership with leading pharmaceutical companies and healthcare bodies. Two of the high value programs are advancing into Phase I clinical development for gastric, biliary and pancreatic cancers, and for leukemia. It is the aim of the Group that its discoveries will provide a pipeline of potential assets to complement and combine with the drug portfolios of larger and emerging pharmaceutical companies.

Funding for the Group was provided by a combination of a secured loan, government grants and equity capital.

At appointment, LCC was owed approximately £3.5m by Oncology pursuant to a loan entered into in 2012. The loan is secured by a debenture dated 1 June 2012 and registered at Companies House on 12 June 2012. The loan is cross-guaranteed by Pharma and secured by a fixed and floating charge over its assets.

Appointment of the Joint Administrators

LCC loaned Oncology £2.0m in 2012, with the loan due for repayment in 2014. The term of the loan was initially extended for one year and again in 2015 for a further two years (to 31 March 2017). The Joint Administrators understand that at various times during the period of the extension, the Group had approached other financial institutions with a view to refinancing the LCC loan.

In February and March 2017, Pharma conditionally raised £12.3m on AIM via a placing of 32,779,957 ordinary shares at 37.5p each. Of these issued shares, Lanstead Capital ("Lanstead") subscribed to 11,500,000 subscription shares representing a gross value of £4.3m. £647k of this amount was allocated to Pharma and £3.7m was pledged to Lanstead under a sharing agreement pursuant to which Lanstead were to make monthly settlements to Pharma over an 18-month period.

This is summarised as follows:

On 1 March 2017, LCC's lawyers wrote to the Group indicating that repayment of the LCC loan was due on 31 March 2017. A reminder of the repayment date was sent to the Group on 30 March 2017. Throughout April 2017, LCC informed the Group that it required the loan to be repaid, however, whilst reserving its position, LCC engaged (both directly and through solicitors) in discussions with the Group about settlement proposals. Throughout these discussions, the Group indicated that separate discussions were at an advanced stage with another financial institution regarding a possible refinancing.

On 17 May 2017, the Group published its interim results for the six months ended 31 March 2017, disclosing details of the fund raise in February 2017, and cash and cash equivalents of approximately £5.1m. In view of this financial information, LCC considered that the Group was in a position to repay the loan in full.

The Group continued to seek to agree terms to defer repayment of the loan, and informed LCC that agreement to refinance the loan was only subject to the lender's internal credit sanction and that an unconditional offer was expected to be issued imminently.

As part of the Group's negotiation with LCC, it offered a partial repayment of £0.5m to cover accrued interest while it completed a refinancing. This offer was declined by LCC, who, via its advisers, requested that the Group provide evidence of the stage of discussions with the alternative lender (for example, heads of terms and copies of relevant correspondence evidencing progress with the refinancing). The Group did not provide any such information and LCC made formal demand on Friday 19 May 2017 for full repayment of the loan.

An offer made by the Group, after the demand had been issued, to pay the sum of £1m by way of an immediate partial repayment of the loan, with the balance payable within 7 days, was declined by LCC.

On 24 May 2017, LCC appointed the Joint Administrators to the Companies under Paragraph 14 of Schedule B1 to the Insolvency Act 1986.

The Companies' books and records show that an indicative written proposal for a £1.7m loan facility had been made to the Group during the period that negotiations with LCC were ongoing.

The drawdown of the loan was conditional on an executed transaction for the licensing of one of the Group's intellectual property assets. At that stage, however, there was negligible prospect of any transaction being reached in respect of the licensing of any asset for several months, and even if this condition had been capable of being satisfied in a shorter time period and the new loan issued, the amount of the new loan would not have been sufficient to repay LCC's indebtedness in full.

Upon the appointment of the Joint Administrators in respect of Pharma, Pharma requested the suspension of the trading of its shares in accordance with the AIM rules.

The cash at bank at appointment of the Joint Administrators amounted to approximately £2.1m and £60k for Pharma and Oncology respectively.

2. Conduct of the administrations

The objective of the administrations

The Joint Administrators believe that objective (a) of the administrations, as detailed in Paragraph 3(1) of Schedule B1 to the Insolvency Act 1986, being to rescue the Companies as going concerns, is likely to be achieved.

The Joint Administrators' actions

As outlined below, the situation faced by the Joint Administrators was both complex and highly unusual in insolvency practice. From the outset, it appeared that the Companies could be balance sheet solvent due to the potential realisable value of the intellectual property assets (and this has subsequently proven to be the case following the disposal of the BTK Program to Loxo Oncology Inc. ("Loxo") on 28 July 2017 for US$40m). The Loxo transaction will allow both Companies to be rescued as going concerns, paying all creditors in full. The sector in which the Companies operate is specialised, and Pharma's AIM listed status added a number of legal and regulatory complexities. This unique set of circumstances has presented and continues to pose a number of challenges to the Joint Administrators and has required them to seek specialist advice on a range of issues in order to ensure that the Companies could be rescued as going concerns.

Details of work already undertaken or which the Joint Administrators expect to be undertaken are set out in the schedule of work attached at Appendix C.

Immediately following the appointment, the Joint Administrators and their staff attended the trading location in Alderley Edge, Macclesfield to undertake an assessment of the Companies' businesses.

Following discussions with the Companies' directors and other stakeholders it was determined that it may be possible to rescue the Companies as going concerns and that two primary strategies would be run concurrently in order to achieve this objective:

1. Explore the feasibility of raising additional funding in order to repay all creditors and rescue the Companies as going concerns; and/or

2. Realise certain of the intellectual property assets held by Pharma, the expected proceeds from which could be sufficient to rescue the Companies as going concerns.

In addition, the Joint Administrators considered the possibility of a combination of an asset sale and an equity fund raise, in the event that the proceeds of an asset sale were not considered by the Joint Administrators to be sufficient to deliver sufficient working capital for the Group going forward.

The Joint Administrators consulted with the Group's directors and senior management to further the concurrent strategies outlined above. The Joint Administrators also confirmed their intention to continue to operate the businesses whilst the above strategies were investigated and, to the extent appropriate, implemented.

The Companies' suppliers were contacted and undertakings provided to ensure continuance of essential supplies during the administration period.

The Joint Administrators' team is working with the Companies' senior management to ensure that ongoing projects are progressed with a view to avoiding any negative impact in the value of the assets (in particular intellectual property assets) held by Pharma, which might otherwise arise as a result of delays in both work undertaken by the employees as well as independent testing undertaken by third parties.

The Joint Administrators' team is in attendance at the Companies' premises on a permanent basis.

The attached Schedule of Work (at Appendix C) provides further detail as to the Joint Administrators' activities since taking office.

Rescue of the Group

The Joint Administrators progressed discussions relating to the realisation of some of the intellectual property assets held by Pharma alongside the proposal to explore raising further funds on the AIM market in order to rescue the Companies as going concerns.

In the light of the Group's cash position (as set out in the attached Statement of Affairs) and the ongoing costs of running the businesses and the administrations, the rescue of the Companies was time critical and the Joint Administrators therefore considered that it was appropriate to progress both workstreams in parallel up until the point where a decision could reasonably be taken that one or other route should be pursued, or ruled out, as the case may be.

The Joint Administrators, together with the senior management, Pharma's existing advisers and the external advisers retained by the Joint Administrators, made significant progress towards both of the prospective options, each of which presented a unique set of challenges.

In the case of the proposed fund-raising on AIM, the Joint Administrators and their advisers are not aware of any precedent for the raising of funds on AIM by a company in administration and so this workstream involved detailed analysis of the legal structuring of any such fund-raise, and in-depth discussions with Pharma's brokers and advisers.

At the same time, complex discussions continued with prospective purchasers of the intellectual property assets, with due diligence procedures being conducted and commercial negotiations taking place.

PharmaVentures Limited ("PharmaVentures") was instructed to value the intellectual property and provide guidance on the marketing and realisation of the relevant assets. PharmaVentures are a leading life science and healthcare advisory firm providing advice in the following areas:

· Valuation, fairness opinions and expert reports;

· M&A advisory for buy and sell side, site divestments and product acquisitions;

· BD & Licensing, full service or bespoke support;

· Deal specific and commercial strategy; and

· Expert testimony, dispute resolution and due diligence.

Following extensive discussions with Pharma's major shareholders and receipt of significant creditor claims, it became clear that the amount of funding required to return the Companies as going concerns would not be realistically achievable through a shareholder fund raise. In addition, a significant shareholder expressed its view that it would seek to vote down any fund raise that would dilute existing shareholders to the extent required to rescue the Companies. The Joint Administrators therefore ultimately concluded that the only realistic strategy was to realise certain of the intellectual property assets held by Pharma.

The Joint Administrators worked closely with senior management and PharmaVentures in order to determine potential purchasers for the intellectual property assets. This was assisted by the Companies' existing sales/licencing program, including the Companies' Chief Business Officer attending the American Society of Clinical Oncology (ASCO) conference in Chicago and the 2017 BIO International Convention in San Diego, during the administration. Two interested parties were identified by senior management with whom they had previously held preliminary discussions relating to a sale and/or license of certain parts of the Group's research program for the development of small molecules each of which having an intended primary mode of action as a BTK inhibitor ("BTK Program"). Other potential interested parties were also identified during this process, however due to the complex nature of these assets and the associated due diligence requirements it became evident that these additional parties would not be in a position to complete a transaction in the accelerated timeframe and was for an immediate value that was necessary if the Group was to survive. Nevertheless, offers were received from several other parties but were rejected as being too low.

Having refined the potential purchasers down to two, being Loxo and another global pharmaceutical company ("Interested Party X"), the Joint Administrators entered into Confidential Disclosure Agreements ("CDAs") with these parties in order to progress the due diligence process. CDAs have also been entered into with other parties who expressed an interest in other aspects of the Group's research, however a sale of any of these assets would take considerably longer to achieve and therefore the (non-exclusive) focus was put on a sale of all or part of the BTK Program.

Following extensive negotiations with both parties, a formal offer was received from Loxo, whose principals expressed their desire to complete a transaction as soon as possible, subject to completion of further due diligence. The structure of the offer was in principle acceptable to the Joint Administrators, however, they provided Interested Party X with the opportunity to submit a counter offer, amongst other reasons, because senior management was of the view that Interested Party X was likely to place a higher valuation on the asset which was the subject of the Loxo offer. Interested Party X was informed of the region of the price that would be acceptable, and that a sale (rather than a licence, to ensure a higher up front payment) would need to be completed at a significantly accelerated rate than hitherto Interested Party X had contemplated. Interested Party X subsequently advised that it was withdrawing from negotiations because it was unable to reach a valuation that accorded with the indicative price set out by the Joint Administrators. In light of this development and the accelerated timeframe required for a sale completion in order to sustain the trading of the Group, the Joint Administrators considered that the sale to Loxo was the only remaining strategy that would stand a realistic prospect of rescuing the Companies as going concerns.

The sensitivity of the commercial negotiations with Loxo (and Interested Party X) necessitated two applications to Court to restrict the information which the Joint Administrators would normally be obliged to file at Companies House and provide to creditors and members. Firstly, the Joint Administrators obtained an order permitting them to redact certain information set out in Pharma's statement of affairs. Secondly, the Joint Administrators obtained an order (referred to above) extending the period for filing their Proposals and sending them to creditors and members. The Joint Administrators considered these applications were necessary on the basis that the proposals and statements of affairs contained certain financial information relating to the Companies, which would not necessarily be disclosed to a purchaser in normal commercial negotiations, and there was an appreciable risk that the information could have been used by Loxo to its commercial advantage in negotiations about its offer if such information was put into the public domain. In addition, as it has been anticipated that the Companies could be rescued, certain commercially sensitive information was redacted to ensure the Companies' future trading was not impacted by its disclosure.

After further negotiations, and conversations with most of Pharma's significant shareholders, Loxo's offer of US$40m for the entire BTK program was accepted, subject to contract and further due diligence. This additional due diligence was undertaken by Loxo, including a review of confidential information relating the chemical structures completed by an independent chemist and a review of the patents completed by independent patent specialists.

A sale of the BTK program to Loxo was completed on 28 July 2017 for US$40m, which was paid in a single upfront cash payment. This comprised a sale of whatever rights, title and interest the Companies had in the patents and intellectual property relating to the BTK program. No further royalties, licence fees, milestones or other payments are due to the Companies under the sale agreement. No representations or warranties have been given to Loxo under the assignment agreement. Redx is subject to non-competition provisions for three years following the sale relating to the BTK program.

Whilst the Companies are now in a position to settle all creditor claims in full, the Joint Administrators must first undertake certain statutory duties before exiting the administrations. Crucially, the Joint Administrators must satisfy themselves that the Companies are able to continue as going concerns following receipt of the sale funds. The Joint Administrators and their staff are now working very closely with senior management to understand the proposed business model, post asset realisation, to ensure that the Joint Administrators are able to properly satisfy themselves as to the going concern status of both Companies.

Next steps for the Administration processes

Following approval of the Joint Administrators' proposals, the Joint Administrators will continue to conduct the administrations to achieve the purpose of the administrations. Key matters to be undertaken include:

· Oversee certain of the Companies' continuing obligations under the sale agreement with Loxo - specifically, pursuant to the assignment agreement with Loxo, the Joint Administrators have agreed that they shall not file or apply for the termination of the administrations until the Group has complied with its obligation to provide certain data relating to the BTK program to Loxo (subject to Loxo making a request that the Group confirms that it has complied with those obligations). That obligation is subject to a longstop provision of 12 weeks from the date of the assignment agreement;

· Continue to trade the Companies' businesses to the extent possible;

· Finalise the trading period transactions and release supplier undertakings;

· Distribute realisations to the secured and preferential creditors, where applicable, and seek the leave of the Court to make distributions to unsecured creditors;

· Ensure all statutory and compliance matters are attended to; and

· Pay all administration expenses and bring the administrations to an end, when deemed appropriate by the Joint Administrators (and in the unlikely event it was necessary, seek an extension of the administrations).

Receipts and Payments Account

Copies of the Joint Administrators' receipts and payment accounts to date are attached as Appendix B, together with trading accounts. The contents of these are self-explanatory.

The directors' Statements of Affairs

The directors of the Companies have been asked to submit Statements of Affairs for the Companies under paragraph 47 of Schedule B1 of the Insolvency Act 1986. Copies of the Statements of Affairs are provided at Appendix E.

The Joint Administrators obtained the leave of the Court pursuant to Rule 3.45 of the Insolvency Rules permitting them to redact certain parts of the Pharma Statement of Affairs relating to the estimated realisation values of the intellectual property assets. This order was requested as the Joint Administrators were concerned that the redacted information was commercially sensitive and that its disclosure could jeopardise the ongoing commercial negotiations (both now and when the Companies are rescued) and therefore the interests of stakeholders.

Moreover, the Joint Administrators believed that disclosure of the redacted information would give rise to difficult issues arising from Pharma's obligations under the Market Abuse Directive. The Court agreed that the release of that information was likely to prejudice the conduct of the Administrations and therefore made the requested order.

The Joint Administrators have reviewed the directors' Statements of Affairs and compared the lists of creditors to claims received to date. The claims received for Pharma are significantly in excess of those detailed in the directors' Statement of Affairs. All claims will need to be verified by the Joint Administrators for the purposes of establishing entitlement to dividend. The additional creditor schedules at Appendix Ehave been prepared by the Joint Administrators to include all claims submitted to date. The table below shows the material variances between the claims actually submitted and those included in the Directors' statements of affairs:

Matters requiring investigation

The Joint Administrators are required as part of their duties to establish what assets the Companies own and to consider the way in which the Companies' businesses have been conducted. They are also required under the provisions of the Company Directors Disqualification Act 1986 to report to the Secretary of State for Business, Energy and Industrial Strategy on the conduct of the directors. If you have any information or concerns regarding the way in which the Companies' businesses have been conducted, or have information regarding potential recoveries for the estate, please contact us as soon as possible.

The end of the administrations

Once the Joint Administrators are of the view that the objectives of the Administrations have been achieved following the realisation of sufficient assets to discharge creditor claims and to put the Companies in a position whereby they can, in the reasonable opinion of the Joint Administrators, continue as going concerns, they will send notices to the Registrar of Companies in accordance with Paragraph 80 of Schedule B1 to the Insolvency Act 1986 to bring the administrations to an end and return the Companies to the control of the directors.

At the point that the Companies are returned to the control of their directors, it is the understanding of the Joint Administrators that the directors of the Company will seek the lifting of the suspension of the Company's shares from trading on AIM.

Whilst it is not envisaged, we set out below, for completeness, a brief description of the possible steps that would need to be taken in the event that creditors cannot be paid in full and/or the Companies cannot be rescued as going concerns.

Unless terminated earlier due to the achievement of the objectives of administration, the administrations will end automatically after twelve months from the date of appointment of the Joint Administrators. This period can be extended with consent of the creditors for up to twelve months or longer by application to the Court as required.

If the Joint Administrators believe the Companies have no property which might permit a distribution to its unsecured creditors, or if they also consider that an exit from administration into liquidation is not appropriate they will send a notice to the Registrar of Companies in accordance with Paragraph 84 of Schedule B1 to the Insolvency Act 1986 to bring the administrations to an end and three months after the filing of the notice the Companies will be deemed to be dissolved.

If the Joint Administrators are of the view that dividends will become available to the unsecured creditors (other than by virtue of the prescribed part and other than paying the creditors in full as part of a rescue) it may be appropriate for the Companies to move from administration into Creditors' Voluntary Liquidation ("CVL") pursuant to Paragraph 83 of Schedule B1 to the Insolvency Act 1986. If applicable, the Joint Administrators will take steps to place the Companies into CVL proceedings.

In the event that a dividend does not become available to the unsecured creditors but it is still appropriate for the Companies to enter liquidation, the Joint Administrators will petition the Court pursuant to Paragraph 79 of Schedule B1 to the Insolvency Act 1986 for an order to bring the administrations to an end with a consequential order for the compulsory winding up of the Companies.

Pursuant to Paragraph 83 of Schedule B1 to the Insolvency Act 1986, should the creditors not nominate a Liquidator in those circumstances, the proposed Liquidators in a CVL would be the Joint Administrators (or any successor office holder(s)). Any act to be done by the Liquidators may be done by all or any one of them. Pursuant to Paragraph 83(7)(a) of Schedule B1 to the Insolvency Act 1986 and the Insolvency Rules, creditors may nominate an alternative liquidator, provided that the nomination is made after the receipt of these proposals and before these proposals are approved.

The Liquidators in a compulsory winding up will be appointed by the Court and may be the Joint Administrators, or any successor office holder(s).

If the Joint Administrators are of the view that it is appropriate for the creditors to consider the approval of a Company Voluntary Arrangement ("CVA") the proposed supervisors would be the Joint Administrators or any successor office holder(s). Creditors may nominate different supervisors when considering whether to approve the CVA proposals.

Decision of creditors by correspondence

As outlined above, the Joint Administrators expect all creditors to be paid in full. Consequently, pursuant to Paragraph 52(1)(a) of Schedule B1 to the Insolvency Act 1986, the Joint Administrators are not required to seek a decision from the Companies' creditors under Paragraph 51 of Schedule B1 to the Insolvency Act 1986 on the approval of these proposals, which are deemed to have been approved in accordance with Rule 3.38(4) of the Insolvency Rules. However, the Joint Administrators are obliged to seek creditor approval for these proposals if they are requested to do so by a creditor of one of the companies whose debts amount to at least 10% of its total debts. Such a request must be made within eight business days of the date of these proposals.

Pursuant to Rule 3.39(4) of the Insolvency Rules, the Joint Administrators invite creditors to form a creditors committee, in accordance with the procedure set out in Paragraph 57(1) of Schedule B1 to the Insolvency Act 1986 and Rule 17.5 of the Insolvency Rules. If a creditors' committee is appointed by the creditors, the following matters will fall for determination by the creditors' committee:

· The basis of the Joint Administrators' remuneration;

· Approval of the payment of the Joint Administrators' disbursements for mileage costs;

· Approval of the Joint Administrators' pre-appointment costs being met as an expense of the administrations; and

· The approval of the Joint Administrators' discharge from liability in accordance with Paragraph 98 of Schedule B1 to the Insolvency Act 1986.

If a creditors' committee is not appointed, the above matters will fall to be determined by the creditors of the Companies by means of voting by correspondence, in accordance with the Insolvency Rules. These proposals are therefore accompanied by a notice setting out the relevant Decision Procedures relating to the various matters referred to above.

To vote by correspondence creditors must lodge a completed Proof of Debt form, which is accepted for voting either in whole or in part, and return the completed voting form by the decision date shown on that form. Pursuant to Rule 15.31(4)-(5) of the Insolvency Rules, creditors whose claims are wholly secured are not entitled to vote and the claims of any Creditors whose claims are partly secured will be valued for voting purposes by reference to the unsecured part. A decision is made if, at the decision date, a majority in value of those who have responded have voted in favour. However, a decision is not made if those voting against it include more than half in value of creditors to whom notice of the vote by correspondence was sent and who are not connected with the Companies. Notice of the decision will be sent to creditors after the decision date.

The Joint Administrators must, however, summon a physical meeting if requested to do so by the required minimum number of creditors. The required minimum number is any one of the following:

· 10% in value of the creditors

· 10% in number of the creditors

· 10 creditors

The request must be made in writing within 5 business days of the date on which the notice of decision by correspondence is delivered, in accordance with the Insolvency Rules.

3. The Joint Administrators' remuneration, disbursements and pre-appointment costs

Joint Administrators' remuneration

A schedule of the work undertaken and still to be undertaken during the administrations is set out at Appendix Ctogether with estimated outcome statements, which include an estimate of the expenses likely to be incurred by the John Administrators. Assumptions made in preparing the summary of work, estimated expenses and the fees estimate are set out in the schedule of work.

The Joint Administrators' remuneration will be drawn from the Companies' assets and it is proposed that it will be charged by reference to the time incurred in attending to matters arising in the administrations. The basis of the Joint Administrators' remuneration has not yet been approved by creditors, and the Joint Administrators have accordingly not drawn any remuneration to date in respect of either of the Companies.

In the unlikely event that the Companies are subsequently placed into liquidation and the Administrators appointed as Liquidators, the basis agreed for the drawing of the Administrators' remuneration will also be that utilised in determining the basis of the Liquidators' remuneration, in accordance with the Insolvency Rules.

Remuneration charged by reference to the time incurred in attending to matters arising

The Administrators' remuneration, which is proposed to be charged by reference to time incurred, is set out on the fee estimates attached at Appendix C. Time costs incurred to date total £1,151,764 and £48,101 for Pharma and Oncology respectively. The time charged is based on computerised records capturing time charged by the Joint Administrators and their staff in dealing with the conduct of those aspects of the case being charged on a time cost basis.

Matters dealt with during the assignment are dealt with by different members of staff depending on the level of complexity and the experience required. Time is charged to the case in units of six minutes. Charge-out rates are based on individual expertise, qualification and grade. The costs of the firm's support staff are not directly charged to the estate unless dealing with directly identifiable case specific matters.

My firm's time has been charged at the rates as set out at Appendix C.

The Joint Administrators believe that the basis of their remuneration, and in particular the application of premium rates, is fair, reasonable and commensurate with the nature and extent of the work to be undertaken in this case, having regard to the principles set out in the Practice Statement on the Fixing and Approval of the Remuneration of Appointees (2004), Part 6 of the Insolvency Proceedings Practice Direction and Statement of Insolvency Practice 9: Remuneration of Office Holders (2010), for the following reasons:

· The Joint Administrators believe that the proposed basis of remuneration is proportionate in the circumstances and the hourly rates and the hours worked are justified by reference to the complexity of the administrations, as outlined in these proposals, and the value of the assets dealt with by the Joint Administrators.

· The Joint Administrators necessarily became heavily engaged pursuing two separate and alternative strategies in tandem for the rescue of the Companies (asset sale and AIM fundraise), both of which have been intensive highly complex, and unusual in insolvency practice.

A particularly unusual feature of this case has been the need to understand and address the needs of a range of different stakeholders, including creditors, management, shareholders, existing company advisers, and regulatory bodies. These stakeholders have often had conflicting views on the best way forward in respect of the Companies and the task of gauging

· these views and accommodating them as appropriate has been a delicate exercise. This is not a feature of the majority of routine insolvency appointments. This work has been intensive and in many respects unpredictable, meaning that it has not been possible to estimate a realistic fixed fee for the work.

· In addition, the work relating to the administrators' statutory duties, and the work associated with continuing the Companies' business during the period of administration has presented its own challenges in the light of the expectation that the Companies may be rescued as going concerns.

· Additionally, the Joint Administrators are assuming exceptional responsibility and risk in relation to the Companies' affairs, in that:

(a) there was an appreciable risk from the outset that there may have been no realisable value given only a small fraction of drug candidates at the pre-clinical stage are eventually approved by competent authorities, the BTK Program had not yet reached human trials (meaning that an investment by a major pharmaceuticals company was unlikely), and the seller was in administration;

(b) given the sums needed to ensure a rescue, it was necessary to sell the IP rights outright (to ensure a higher initial payment), as opposed to a licensing deal, which entailed more risk for a potential purchaser and therefore became an even more difficult task. This is evidenced by Interested Party X withdrawing their interest on becoming aware of the value of the upfront consideration required for there be a reasonable prospect of the Administrators rescuing the Companies as going concerns. As discussed above, Interested Party X and Loxo were only parties of which management, the Administrators and their advisors were aware of capable of completing a transaction at this level in the available timescales for the BTK Program;

(c) pharma assets are inherently intangible and difficult to value and no one was therefore able to assess the level of consideration that would be achievable in an accelerated administration sale;

(d) they have been engaged in highly sensitive and complex negotiations with prospective acquirers of the Companies' intellectual property assets;

(e) they have been required to execute transactions relating to the realisation of IP assets on behalf of the Companies under significant time pressure, in circumstances where the failure to conclude a transaction with the sole remaining interested party before the Companies' limited cash reserves were depleted would almost certainly have resulted in the failure to rescue them as going concerns, with all of the consequences that would entail for creditors, employees and shareholders;

(f) because of the intangible nature of the assets and the listed nature of the business, they have been required to deal with a disparate variety of additional stakeholders and advisors; and

(g) prior to determining that the sale to Loxo represented the best opportunity to rescue the Companies as going concerns, they had made significant progress (with the encouragement of Pharma's senior management team) towards a possible fund raising on the AIM market; although eventually discounted due to the clear difficulty in raising the level of funds required to rescue the Companies as going concerns, such a step would have been unprecedented in insolvency practice and carried a significant degree of risk for the Joint Administrators.

· In the specific context of the negotiations relating to the disposal to Loxo, there have been a large number of uncertainties and complexities that could have de-railed the transaction. The disposal of the BTK program has required significantly more time than a straightforward commercial negotiation. It concerns highly technical and scientific evaluation by both a potential purchaser and its agents, which in turn led to a significantly more complex due diligence exercise; whilst the Joint Administrators acknowledge the enormous contribution to that process played by certain of the Companies' employees and management, that process required to be fully supervised and understood by the Joint Administrators and their team. The number of potential purchasers for the Companies' assets is also not substantial, given the specialised market for the programs under development. Amongst other things, this has seriously limited the Joint Administrators' flexibility, as compared with the sales process relating to more conventional assets. For these reasons, it is rarely the case that pharma transactions are completed quickly, in this case the Joint Administrators' success in completing the transaction barely two months after taking office is considered to demonstrate the value of the work carried out.

· In the light of all of the points above, and having continued to trade to ensure the best price was obtained for its assets, there has always been a real risk that if neither the disposal of the BTK Program nor the AIM fundraise had been achieved within the limited time available, the Companies could not have been rescued as going concerns and the Joint Administrators (and their advisers) would have faced a real risk that they would not have been paid in full or at all.

· By assuming these risks, the Joint Administrators believe that they have put the Companies in the best possible position to ensure their rescue and future success, and that they have therefore delivered significant value to all stakeholders.

Joint Administrators' disbursements

The Joint Administrators' disbursements are a recharge of actual costs incurred by the Joint Administrators on behalf of the Companies. Mileage payments made for expenses relating to the use of private vehicles for business travel, which is directly attributable to the administration of the Companies, are paid by FRP at the HMRC approved mileage rate. It is proposed that mileage is recharged and drawn at the HMRC approved mileage rate prevailing at the time the mileage was incurred.

Pre-administration costs charged or incurred by the Joint Administrators

Attached at Appendix Dis a statement of pre-administration costs charged or incurred by the Joint Administrators which had not been paid when the Companies entered administration.

The Joint Administrators are seeking to obtain approval from creditors under Rule 3.52 of the Insolvency Rules for the payment of this amount and a stand-alone separate resolution is included on the proxy form attached.

Creditors' ability to challenge the Joint Administrators' remuneration and expenses

Creditors have a right to request further information from the Joint Administrators and further have a right to challenge the Joint Administrators' remuneration and other expenses under the Insolvency Rules following receipt of a progress report. Further details of these rights can be found in the Creditors' Guide to Fees which you can access by using the following link http://creditors.frpadvisory.com/feesguide.htm and select the one for administrations. Alternatively, a hard copy of the relevant guide will be sent to you on request.

Decisions of creditors on remuneration and discharge from liability

Sent with these Proposals are notices to the creditors of the Companies to consider (1) the appointment of a creditors' committee, and (2) to the extent a committee is not formed, to approve the fee structure outlined above, and (3) to make provision for the Joint Administrators' discharge pursuant to Paragraph 98 of Schedule B1 to the Insolvency Act 1986.

4. Estimated outcome for the creditors

Estimated Outcome Statements

The Joint Administrators attach at Appendix Can estimated outcome statement which has been prepared from company information, estimated sums due to creditors and an estimate of our remuneration and other expenses that may be incurred during the course of this administration. The assumptions made in preparing the estimated outcome statement details are set out in the schedule of work.

Based on the information available to date and the assumptions made the Joint Administrators set out below the anticipated the outcome for creditors:

Outcome for Secured Creditor

LCC were owed approximately £3.5m by Oncology under a debenture dated 1 June 2012 and registered with Companies House on 12 June 2012. The debt is cross-guaranteed by Pharma and secured by a fixed and floating charge over Pharma's assets.

Following the sale to Loxo, the debt to LCC was settled in full, including interest, and all security has been released.

Outcome for Preferential Creditors

It is currently anticipated that preferential creditors, constituting any unpaid executive pay and unpaid pension contributions will be paid in full. All employees have been retained and therefore no additional preferential claims are anticipated.

Outcome for Unsecured Creditors

Based on the strategy detailed previously in this report it is currently estimated that unsecured creditors of both Pharma and Oncology will be repaid in full. The Joint Administrators will shortly apply to Court for approval to make distributions to unsecured creditors during the administrations and a Notice of Intended Dividend will be issued to unsecured creditors accordingly in due course. It is intended that the application to approve distributions will be determined by the Court as soon as possible following the deemed approval (or, if a meeting to approve the proposals is requisitioned, following the decision made at that meeting) so as to ensure that unsecured creditors are paid as soon as possible.

The Joint Administrators propose that Pharma (which has historically funded Oncology) will provide funding so as to enable Oncology to repay its creditors in full, or to make such provision as the Court may direct for the payment of Oncology's creditors.

All creditors are reminded to lodge their claims in the respective administrations at their earliest convenience if they have yet to do so.

Prescribed Part

The prescribed part is a carve out of funds available to the holder of a floating charge which is set aside for the unsecured creditors in accordance with section 176A of the Insolvency Act 1986. The prescribed part only applies where the floating charge was created after 15 September 2003 and the net property available to the floating charge holder exceeds £10,000.

A prescribed part is not appropriate in this case because it is anticipated that all creditors will be repaid in full following the rescue of the Companies as going concerns.

For further information, please contact:

About Redx Pharma Plc (in administration)

Company website: redxpharma.com

Jason Baker and Miles Needham have been appointed as joint administrators of Redx Pharma plc (in administration). The company's affairs, business and property are being managed by the joint administrators.

Redx is focused on the discovery and development of proprietary, small molecule therapeutics to address areas of high, unmet medical need, principally in cancer, infection and immunology, providing a pipeline of assets to larger and emerging companies. By improving the characteristics of existing drug classes to create highly differentiated, novel, best-in-class drugs, Redx has already established a broad portfolio of proprietary drug programs.